Question

Matt plans to use part of the sale proceeds to purchase two bank bills today. Matt will use the remaining part of the sale proceeds for living expense. • Bank bill D is a 180-day $40,000 bank bill. The purchase yield rate is 3.1% p.a. (simple interest rate). • Bank bill E is a 270-day $50,000 bank bill. The purchase yield rate is 3.2% p.a. (simple interest rate). Calculate the purchase price of bank bill D and bank bill E. Round your answer to three decimal places

Answer 1

Price of Treasury Bill with face value $ 100 = [$ 100 – (Days to maturity x yield rate)/Days in a year]

Computation of price Bill D:

Price of Bill with face value $ 100 = [$ 100 – (180 x 3.1)/360]

                                                      = [$ 100 – (558/360)]

                                                      = $ 100 – 1.55 = $ 98.45

Price of Bill D = $ 98.45 x 40,000/100 = $ 98.45 x 400 = $ 39,380

Computation of price Bill E:

Price of Bill with face value $ 100 = [$ 100 – (270 x 3.2)/360]

                                                      = [$ 100 – (864/360)]

                                                      = $ 100 – 2.40 = $ 97.60

Price of Bill E = $ 97.60 x 50,000/100 = $ 97.60 x 500 = $ 48,800